GS-55

INDONESIA Sri Mulyani Indrawati, Governor

Chairman of the Board of Governors Taro Aso, His Excellency President Takehiko Nakao, Excellencies, Fellow Governors, Distinguished Guests, Ladies and Gentlemen,

It is my pleasure to join you all in Yokohama for the 50th Annual Meeting of the Asian Development Bank. On behalf of the Government of , I extend my appreciation to the Government and People of Japan for their warm welcome and excellent hospitality in hosting this important gathering.

I would like to congratulate ADB for reaching its 50th year of operation and its achievement in supporting the region in its effort to reduce poverty, strengthening regional cooperation through their financial support, promoting good policies and sharing knowledge.

Improving Asian Capacity to Support the Global Economy This year of 2017 marks the 20th years since the Asia Financial Crisis. It was a period where some countries in were badly hit by the financial crisis and raised fears of its potential contagious effect to the global economy. The cause and consequences of these crisis provided valuable lesson to East Asian countries and beyond. While Macroeconomic policy is important to create necessary condition to support growth and progress, they are adequate. Asian countries learned that good governance, effective financial regulation and supervision are critical to sustain the progress. Corruption is also the most important culprits of the weakening of the economy because it destroying trust and confidence, widening inequality, as well as complicating the speed and effectiveness of crisis resolution.

The Asian regional recovers relatively quick and robust from the crisis. Countries adopted macroeconomic reform with fiscal prudence, independence and credible monetary policy, and strengthening financial supervision. Structural reforms were introduced to improve governance, increasing accountability, transparency, improve competition and reducing bureaucracy and regulatory hurdles for investments.

Today, Asia and the Pacific region has been the main engine of growth for the global economy for the last several years. Developing Asia has transformed itself to a higher income region. According to the latest ADB’s report, Developing Asia is expected to remain broadly positive in the next three years. This outlook is mostly driven by robust domestic demands, increasing investment and a gradual recovery in the global economy. The region is forecasted to expand by 5.7% in 2017 and 2018. Poverty reduction in the region is showing a declining trend due to

sustained growth and rising labor incomes, but we need to continue vigilant with the risks in the form of rising inequality. However, the transition to a high-income group will depend on how we invest to maintain productivity growth through: innovation, human capital, and infrastructure. We also need supportive institutions, policies, and macroeconomic stability to achieve sustained economic growth further. Government role is critical to make sure that they are supporting and facilitating this transformation process to high income and not to be the part of the problems.

At the same time, we must also be aware that we are still prone to some risks. Stagnant global growth, protectionist pressures, risk of financial market disruptions, rapid credit expansion in several East Asian countries and heightened policy uncertainty will overshadow our efforts to attain higher and better quality of growth.

To address these risks, policy makers should continue to focus on sound and effective macroeconomic management supporting by sustainable fiscal policy. We need to continue reforming our policy and institution to promote investment and addressing inefficiency and inequality. As a premier multilateral bank in Asia-Pacific, I urge ADB to play a stronger role to assist members through financial support, provide technical assistance, grants and equity investments that promote socio-economic development. ADB should always be responsive to the member countries’ priorities and concerns and to actively be involved in creating a better environment for trade and investment in Asia and the Pacific, promote regional collaboration, as well providing flexibility to support member countries with variety of suitable modalities.

Indonesia supports ADB to incorporate the Sustainable Development Goals (SDGs) and Climate Change actions, including adopting the Paris Agreement, into its new ADB’s long-term strategy. Vulnerable economies need assistance to build resilience and adaptation. ADB should actively supports and provide more resource allocation to the member countries on how to build their capacity to deal with climate change and natural disasters.

Future of Economic Openness and Global Partnership for Inclusive and sustainable Development We have witnessed that free trade has been the key "essence" for the economic success in Asia in reducing poverty. And for Asia to continue growing, it is very important to keep this free trade and investment regime. Open markets, trade, division of labor have worked extremely well for poorer countries. It created deep concern that the finance ministers and central bank governors from the countries in their Baden-Baden Communiqué dropped their pledge to keep global trade free and open. The recent development of increasing protectionism in several developed countries has been alarming. ADB and its member countries should continue to fight against protectionism and unfair competition, so we could build the momentum of progress on reducing poverty and addressing inequality within the region and globally.

ADB should pay more attention to people who are not benefiting as much as others from globalization. A coherent, committed and coordinated policy action among member countries is also needed to simultaneously raise growth rates, improve inclusiveness and sharing prosperity.

2

Enhancing partnership with member countries and promoting regional cooperation and integration (RCI) On behalf of the Government of Indonesia, I am committed to strengthen partnership among the ADB’s member countries, to increase the effectiveness and sustained impact of ADB’s operations to reduce poverty, increase growth, and strengthen the global economic stability. Member countries should also work more closely to help alleviate poverty and address development challenges. ADB should further encourage and facilitate South-South Cooperation and other RCI initiatives. Indonesia will be pleased to continue working with the ADB and its member countries and providing its support to this important agenda.

Furthermore, member countries should continue to work together with ADB to achieve ADB’s goal articulated in the ADB Strategy 2020, which reaffirms both ADB's vision of an Asia and Pacific free of poverty and mission to help its developing member countries improve their living conditions and quality of life. With only three years remaining of implementation, we must work harder to finish what we have started to achieve, the goals that what we have set.

We support ADB new strategy to transform ADB to be stronger, better, and faster development bank in helping its developing member countries in addressing the current emerging challenges in Asia and the Pacific, including climate change, inequality, gender, infrastructure gap, aging and young population.

Last year, Indonesia returned as a donor to the Asian Development Fund (ADF) at the ADF-12 replenishment meeting in Germany. Indonesia also already contributed to the ADB Institute Special Fund (ADBI SF). All these commitments provide evidence of our strong commitment to support ADB’s mission and vision.

Improving project performance To continue relevant as a multilateral development bank, ADB management and staff should be able to recruit and retain professional, skilled and competent staffs. The ADB should improve knowledge management to understand and respond better towards the clients’ needs.

We welcome the decision to merger the OCR and ADF operation that significantly enhance the ADB’s capital levels that enable to increase lending by as much as 40 percent. We support further reform to shorten procurement process, improve project implementation, delegate decision to the field, and increase the scale of private sector operations.

ADB should also maintain or even improve its financial instruments, including policy-based lending, results-based lending and project lending and knowledge procedures. ADB should continue to innovate in how to combine public and private resources effectively through knowledge management and deployment. Policy-Based Lending (PBL) has helped many countries to design and implement important strategic reforms. This reform needs to be maintained in order to allow ADB to respond effectively to the clients’ needs.

The implementation of key reforms on procurement, pensions, and IT system should be a priority agenda for the Bank in order to provide the best operation system. It is my recommendation to ADB to continue its internal reform to achieve real better and faster operation in providing support and assistance to member countries. In that regard, more efficient, effective and governance of the Bank going forward should accompany the innovation its pursues.

3

Indonesia’s latest development Amid low commodity prices, weakness of international trade, and uncertainty of global economic policy coordination, Indonesia continues to show high economic growth, at the level of 5.02% in 2016. This is supported by low level of inflation, high domestic consumption, and diversification of the industry composition.

As Indonesia is always committed to build green economy with related to the climate finance issue, I would like to share with you that we are now on in the process of mapping the need, capability and structure of the environmental data on the national scale. We have already issued a roadmap for sustainable finance in Indonesia to support our efforts to bring economic and environmental sustainability interests together. Indonesia has rationalized and significantly phased-out inefficient fossil fuel subsidies and creating more space in the budget to optimize government spending.

Indonesia conducts budget reform process to create credible, productive, and realistic budget in order to support sustainable and inclusive economic objective, while maintaining for fiscal deficit. Now, infrastructure spending has doubled since the reforms. Basic service spending, such as on education and health, have also markedly increased. The reforms have also provided opportunities to accelerate the renewable energy and biofuel implementation.

To increase the government part for financing, President has cited higher tax revenues as the key to boost infrastructure spending and growth. One main strategy is to increase our national tax ratio, which in 2016 was only 10.6 percent of the GDP. In that regard, I am happy to share with you that by March 2017 Indonesia has just completed one of the world's most successful tax amnesty programs, with at least 965,000 taxpayers declaring more than $350 billion of assets so far. This program is aimed at collecting more tax revenues, which will be allocated to finance key infrastructure projects. In addition to boosting infrastructure spending through this program, the government has issued a policy for mandatory allocation of at least 25% of central government transfers to the region for infrastructure development.

Indonesian Government also has adopted a series of policies and strategies aimed at increasing investments in infrastructure, providing ease in doing businesses and promoting exports. These strategies include; maintaining economic stability to promote strong business and investment climate, simplifying licensing and investment procedures, harmonizing investment regulations between central and local government and improving the role of SOEs and private sectors in infrastructure development. These comprehensive reforms will provide more certainty to business and investors.

However, as an emerging market economy with rapid development, Indonesia still faces many challenges, among others high rate of poverty and inequality. The issue of inclusiveness is also increasingly important given rising inequalities across and within countries. Without addressing the issue of inequality, growth will not be sustainable.

Therefore, the Government of Indonesia continues to work hard to achieve well-targeted and inclusive economy by preserving a prudent fiscal policy and to pursue high and sustainable growth with emphasis on maintaining budget discipline and public debt management. Indonesia also focuses to achieve inclusive economic growth and poverty reduction through infrastructure development and investment climate improvements. Infrastructure could overcome inequality through connectivity. However, government needs support from multilateral partners as well as private sector to finance infrastructure development as the government budget could only cover

4

for about 41.3 percent. In this regard, ADB is expected to offer beyond classic aid and program aims at promoting inclusive growth and job creation.

The ADB’s support in the implementation of PPP scheme in Indonesia as a financing alternative is highly desirable in order to accelerate infrastructure development. In 2016, ADB provided USD2.65 billion financial assistance to Indonesia. In line with the government’s priority, most of the ADB-supported projects were on infrastructure, fiscal and public expenditure management, and support for government reforms of the investment environment and support for policy reforms to tackle inequality. During President Nakao’s visit to Indonesia last year, he reiterated the ADB’s commitment to provide more financial and technical assistance in 2017 and plans to invest in key sectors through its private sector operations. We are very happy with this commitment and looking forward to work closer with ADB in the future.

Closing The 50th ADB anniversary provides an opportunity to celebrate the contribution of ADB to the significant progress in Asia and the Pacific Developing Member Countries for over the last 50 years. However, we are aware of more significant works needed to ensure that ADB assists countries and fulfill the promise of an Asia-Pacific free of poverty.

Having said that, I would like to close my statement with a hope that in the spirit of mutual understanding and cooperation, which transcend beyond our national interest, we can maintain our economic momentum. We also ask the ADB to continue its support on our development agenda in the spirit of partnership. With this I would like to thank the ADB for its ongoing support to Indonesia’s development.

Thank you.

5